Judgement and Decision-Making in an Uncertain World: A Comprehensive Guide

Decision making is a core skill of management and leadership. But effective decision making in a dynamic and uncertain world is difficult for many leaders. Some leaders are overly confident in their abilities and fumble from one bad decision to the next. Others are beset with anxiety seeking 100% certainty before making a decision and committing to action.

For the very best decision making appears to come naturally. These people are often so decisive they appear prescient, whilst at other times they display the self-awareness to seek out the counsel of more qualified people. Level-headed and clear-eyed in the face of uncertainty where others are dominated by hubris or fear. Why is this? What steps can be taken to improve our decision making?

The article is part 1 of a series on Judgement and Decision Making. In this article we will explore the decision-making process and the biases we confront in arriving at a decision.

The Decision Making Process

We all make decisions daily, but few actually consider the systematic process we use to make conscious decisions. The process can be broken down into the following steps;

1. Goal / Objective
2. Problem or Opportunity
3. Thought / Cognition
4. Judgement
5. Decision

Goal

The goal is the precursor to the problem. Without a goal there is no problem. All decisions can be reduced to the resolution of a problem preventing the realisation of a goal. Having clear goals and objectives is therefore crucial to effective decision making. Fuzzy or conflicting goals result in a mess of priorities and inhibit the leaders ability to recognise potential obstacles or opportunities to achieve those goals.

Problem / Opportunity

In life and business, we understand that problems and opportunities do not present themselves as neat little packages for our attention. They generally arise due to our previous actions (or lack of) or the actions of others, and in the case of problems often beset us at a point of great inconvenience.

Thinking

Complex problems and opportunities are considered through both intuitive and analytical thinking processes. The human brain has limited capacity and struggles to consider more than about 6 factors at once. To overcome this constraint the brain draws on experience and knowledge to identify important factors and disregard unimportant information. The brain also groups similar factors and cues together to further short-cut the thinking process.

Domain experts demonstrate improved intuition and fast-thinking processes. As experience and skills increases leaders tender to become more adept at making judgments in their area of expertise. This is due to improvement is identifying cues and improvements in pattern recognition. However, domain experts do not perform any better when making judgments in unfamiliar circumstances This is poignant when considering decision making in a management setting where situations are often times novel.

Our brain’s ability to select factors relevant to the decision-making process is heavily influenced by a wider variety of biases and heuristics to which the human mind is prone. Some examples of these are:

• Availability (or Recency) Bias – We place greater emphasis on factors associated with events or even anecdotes that can be easily recalled.
• Optimism Bias – Wishful thinking elevates the importance of positive cues and a propensity to believe that you will be less likely to experience negative events.
• Concrete Information – We place more value on past experience or advice from a friend, than information presented provided in a report.
• Data Presentation – Tendency to recall information at the top or bottom of a list, have a preference for diagrams over written information. Assuming neatly presented diagrams means that the underlying data is reputable.

Being aware of these 4 alone and taking steps to overcome them could greatly improve decision making inputs.

Judgement

The outcome of the thinking process is a judgment on how to resolve a problem or capitalise on an opportunity in pursuit of a goal. Judgement requires an assessment of context and problem specific factors, which each person selects, weighs and synthesises differently. As a consequence judgement is heavily influenced by factors such as societal norms, personal values, personality etc. The brain is also subject to cognitive distortions at this stage including:

• Framing Effects – Where the outcome is framed as a gain we tend to be risk averse, where the outcome is framed as a loss we tend to be risk taking. This can result in the same person making conflicting judgements for the same problem.
• Overconfidence – People generally place high level of confidence in their own judgement. Experts are not immune to this overconfidence. The overconfidence bias has been called the most prevalent and potentially catastrophic of the biases.
• Sunk Cost – This is the tendency for people to continue down a certain path once time, effort and resources have been invested. The more that has been invested the harder it is for people to let go of a certain course of action, there is a compulsion to see things through so as to justify the effort that has been made. This clouds our judgement and potentially leads to further wasted time and resources on a lost cause.
• Stress – Anxiety and worry clouds our thinking and negatively effects our reasoning and intuition. Where the decision making itself is the stressor, we lean heavily on learned skills and talents. It is in times of stress where expertise and experience become important foundations for effective decision making.

Decision Time

Judgement proceeds a decision. In daily life people make judgements frequently without then going on to make a decision. Moving from judgement to decision requires intent and commitment. Once we make a decision we are committing to an action. This could be an immediate action or a deferred action (or plan). Making a decision does not mean that we cannot adjust or change our decision at a later stage. Great decision makers seek feedback on their decisions and adjust accordingly.

Summing Up

We are making decisions all the time. Many are trivial and made subconsciously. Others are life changing and require careful consideration, iteration, and consultation before we are willing to commit. Regardless of their nature all decisions can be analysed through the framework presented in this article. When making consequential decisions it is important that we have the self-awareness to understand our own fallibility. With this self-awareness we can review our judgements for potential short-comings and thus improve our ability to make effective decisions.

In the next article we will explore what personal attributes that contribute to effective decision making, the limitations of probabilistic decision methods and group vs individual decision making.

References – Parkin, J (1996), Management Decisions for Engineers; Wikipedia – List of cognitive biases